With surging inflation and the energy crisis, we have been working on and re-assessing our client’s forecast property spend for 2023.  There has been a great deal of economic turbulence that has had an impact on inflation across all service cost categories.  Generally, it seems that inflation has now peaked, wage pressures may soon subside and wholesale energy costs are dropping back down.   So, perhaps some of the darker assessments of cost increases may have been overplayed?  To be fair to anyone setting budgets, it has probably never been more challenging.

With our extensive data set, we continually monitor changes and the latest forecast (2023 versus 2022), based on budgets & premiums received, is set out below:

Service Charge – Offices +19%

This is where the inflationary pressures have had greatest effect, mainly due to the heavy consumption of energy and supply-line issues of dealing with plant and equipment (repairs/parts and maintenance) as well as staffing costs.  The variability of energy costs is significant.  Longer term contracts that spanned the period of most significant disruption might not suffer a great deal as wholesale rates have already dropped back, whereas others have seen costs increased 2 or 3 fold.  It now seems that many of these higher level budget increases may have over-stated the impact of the energy crisis due to the government support package and changes in the market.

Service Charge – Shopping Centres +12%

On average, the service charges are increasing by 12%, with energy having less of an impact, making up a smaller proportion of the budget compared to offices but the other cost pressures apply.  Also, it’s noticeable that high-class or prime centres are subject to higher levels of increase compared to secondary schemes, possibly due to a scaling back in services due to commercial pressures & viability.

Service Charge – Retail Parks +7%

Here energy costs have even less of an impact and the primary cost pressures are related to manpower, with living wage considerations. 

Insurance – All Sectors: +11%

This is largely related to increasing rebuild costs, with construction staff and materials costs rising.  There has also been a marginal increase in premium rates.

That’s how things stand right now.  In 3 months, it might be very different!

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